Anugrah Scam: Many Unanswered Questions for SEBI, NSE and Edelweiss
Edelweiss Custodial Services Ltd (ECSL) allegedly sold Rs420 crore of clients’ shares, mutual funds and securities from 9th March to 7 May 2020, without first seeking additional cash collateral or encashing the bank guarantee (BG) available with it, alleges Paresh Mulji Kariya, promoter of the failed Anugrah Share & Brokers Pvt Ltd (Anugrah) in a court affidavit. He states on oath that ECSL did not exercise ‘reasonable care and diligence’ and, “as a consequence, in some instances, it is very probable that securities may have been improperly sold by ECSL.”  
 
This is a serious charge which formalises the allegations that were made about the clearing member and could open a can of worms. Anugrah, with its associates, was managing over Rs1,000 crore of investors’ money and has run up huge losses in derivatives trading. It has been running an unauthorised derivatives advisory service (DAS) with Teji Mandi Analytics Pvt Ltd, (TMA) and Om Shri Sai Investments (OSSI). Nearly 37-odd investors have sued Anugrah in the Bombay High Court, and more are likely to join in. 
 
Mr Kariya’s affidavit in connection with these arbitration petitions (No.30 of 2020 and others) argues that the general practice in the derivatives segment is that when a trading member has a debit balance, he is first asked to bring in additional collateral. If that is not provided, the clearing member/ custodian encashes the BG that is available. It is only if the BG falls short, that clients’ shares pledged with the clearing member are sold to meet the settlement requirements. He accuses ECSL of having sold client shares on 26 different dates since March 2020.
 
Moneylife has earlier reported how TMA had made similar allegations against ECSL in an email to its investors. TMA was running an unauthorised DAS scheme offering extremely high monthly returns and had garnered over Rs800 crore; however, its entire business was routed through Anugrah. The nature and legality of that arrangement, and why it was not flagged by annual inspections of the National Stock Exchange (NSE), is unclear. 
 
On 31st August, we had reported how ECSL and Anugrah terminated their relationship and the brokerage firm moved to ICICI Bank as clearing broker on 20th July, just days before the NSE, after a surprise inspection, switched off its derivatives trading facility bringing its problems to a head and exposing the ponzi scheme that it seems to have been running. 
 
Interestingly, Mr Kariya has tried to wash his hands off any responsibility for ‘clients’ of TMA which was running the illegal DAS. He says that trades of all TMA clients in all market segments including cash, derivatives, commodities and currency were independently executed and Anugrah merely offered a platform and passed on the brokerage to the firm. He claims that invoking arbitration provisions by TMA clients is misconceived because arbitration is only possible between Anugrah and TMA and not the latter’s clients. He goes on to offer a detailed explanation of how TMA conducted its own trades through Anugrah. This is important because the largest chunk of money owed to investors (over Rs800 crore) came through TMA. 
 
Remember, NSE switched off Anugrah’s derivatives business on discovering Anugrah’s unauthorised DAS through OSSI which had collected Rs165 crore and shutdown in 2019. Why did it fail to spot TMA’s significantly larger DAS of over Rs800 crore? So far, there is no action whatsoever against TMA, although investors have rushed to the economic offences wing (EOW) of the Mumbai police as well as the Bombay High Court against Anugrah. 
 
In an interim order on 31 August 2020, Justice Gautam Patel of the Bombay High Court asked Anugrah not to alienate assets to the tune of Rs52 crore covering the claims of a set of petitioners. We understand that many more investors have filed similar petitions since then which would probably be taken up at the next hearing on 18th September.
 
Meanwhile, Mr Kariya has submitted a list of his assets including offices, cars, computers, air-conditioners and a small list of shares, etc, which are largely unencumbered. He also mentions a large number of bank accounts with various public and private sector banks for the multiple trading memberships of the group across market segments (equities, commodities, currency, etc) and admits that he has multiple BGs against deposits maintained in these accounts. These add up to a fraction of the money owed to investors. 
 
Moreover, not all the assets seem to be a part of this affidavit. Moneylife recently reported how a search of the statutory filing website MCA21 of the ministry of corporate affairs (MCA) reveals that Mr Kariya and his wife had significant interest in real estate. Many of these are not included in the affidavit. 
 
 
Way Forward
What is the way forward for those who have lost money to Anugrah and other dubious brokers who promised high returns of derivatives arbitrage and went bust? Those with smaller investments could benefit from the stock exchange’s investor protection fund, when a broker is finally declared a defaulter. But, remember, it took nearly nine months for NSE to expel Modex International Securities who lured investors with a similar scheme. It was declared a defaulter on 16th September and investors will now have to file claims with NSE’s investor protection fund (IPF). This has a cap of Rs25 lakh and that too is available only in respect of trades on the Exchange and loss of securities placed as margin. These investors will be lucky to see any money before the end of 2020.
 
Since Anugrah went belly up in August, there will be a similarly long-drawn process of audit, inspection, hearings, etc, before it leads to concrete action. That may be too late to recover anything meaningful. For investors who have lost large sums in failed brokers such as Anugrah (including TMA), BMA Wealth Management, Modex and Allied, it may be futile to wait for NSE and the Securities and Exchange Board of India (SEBI) to complete their long-winded investigations. 
 
Already, a SEBI circular of 1 July 2020 compromises their interest by closing arbitration as an option. Advocate Ravi Hegde of Parinam Law Associates, a securities law firm, says that SEBI’s or NSE’s circulars also cannot be challenged before the Securities Appellate Tribunal following the Supreme Court order in NSDL vs SEBI (civil appeal 186 of 2007). 
 
This leaves only the writ jurisdiction of the high courts to raise some important issues that are unlikely to be heard otherwise. For instance, did the Exchange and the regulator do enough to stamp out dubious derivatives schemes? Why didn't the large trading volumes of brokers, like Anugrah and Modex, lead to additional checks and inspections as is warranted by specific circulars of the Exchange?
 
For instance, NSE’s 3 July 2017 circular on enhanced supervision makes it mandatory for brokers to upload the fund balance and securities balance of the clients. Did Anugrah upload accurate information? Who is responsible for verifying these facts, especially since investors now say that the broker maintained two sets of books and false information may have been provided?
 
Were the funds lying with brokers adequately monitored as per NSE’s 20 July 2017 circular? In Anugrah’s case, did the clearing member, ECSL, alert NSE to the repeated payment problems of Anugrah since January 2020? What action was taken by the Exchange? Why did inspections fail to spot the illegal DAS through TMA? Many of these issues are not addressed by SEBI’s new regulations that kicked in on 1 September 2020 which make it harder for brokers to misuse client securities and funds. But will shady brokers discover loopholes and work their way around those too?
 
None of these questions is going to be answered unless SEBI, NSE, NSE’s clearing corporation and the clearing member are required to provide answers in a judicial hearing. The unfortunate truth is that while we have a powerful market regulator since 1992, SEBI has long ago stopped listening to ordinary retail investors or being accountable to them.
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    COMMENTS

    Ramesh Popat

    1 week ago

    let the nifty go below 5000 (and sensex below 15000) and all people will be wiser!

    REPLY

    bhogibhaigandhi

    In Reply to Ramesh Popat 1 week ago

    What about payment made by cheqe major potion,and whataboutshares sold but payment not made,pl guide

    What Ails PMFBY, the Crop Insurance Scheme and Why Are Farmers Not Satisfied with It?
    In February 2020, the Indian government approved the revamping of the Pradhan Mantri Fasal Bima Yojana (PMFBY) or the crop insurance scheme to address some previous challenges in the implementation of the scheme.
     
    The PMFBY is designed to protect farmers from natural calamities, pest or insect attack and diseases and help them get back on their feet by providing financial support through claim settlement.
     
    The government made the scheme voluntary for all the farmers from Kharif-2020 onwards. Earlier, the scheme was compulsory for all the loanee farmers.
     
    Now, farmers with loan dues can opt out of the scheme by submitting a simple declaration to their bank branch seven days before the cut-off date of enrolment. 
     
    However, there are still some issues being faced by farmers, the major one being change in the insurance company every year, which they feel makes it difficult to submit claims and grievance redressal applications, if any. 
     
    One of the readers, Santosh Kulkarni from Gadag district in Karnataka, shared his observations on the PMFBY scheme. He also shared feedback from farmers on the ground level. Based on his observation, Moneylife approached Shrirang Samant, who has worked in senior leadership roles in the general insurance industry, both in the public and private sectors, to understand the scheme. While he was not directly involved in the crop insurance business, he discussed this with several of his colleagues, who had worked in the segment and shared their feedback. We also approached another expert from the insurance industry, who shared his views on the scheme, but does not want to be named (we will refer to him as Mr Iyer). 
     
    According to Mr Samant, the PMFBY follows a detailed operational manual, which covers all aspects of the scheme, right through to claims and grievance redressal in respect of claims. These guidelines are updated every year, the latest one, operational for Kharif 2020 is available on the PMFBY website. 
     
    The Union government has designed and developed a National Crop Insurance Portal (http://www.pmfby.gov.inNCIP) (www.pmfby.gov.in) which has been in use since kharif 2018. NCIP has been operationalised for auto administration and seamless flow of data, information, reports on real-time basis. State governments are no longer allowed to create, or use a separate website for crop insurance purposes. Karnataka is already running its portals on crop insurance but eventually it will have to migrate to NCIP.
     
    Broadly, the scheme covers a range of crop failure and diminution scenarios, at a basic crop unit of a loanee or non-loanee farmer. The geographical unit is a panchayat. Insurance companies are invited to tender and once that is accepted, the farmer pays a fixed percentage, the rest being paid by the state. There are well-defined procedures for lodging and adjusting claims. 
     
    Here are the excerpts…
     
    Q. Every time there is new insurance company being empanelled and farmers have been asked to pay insurance premium before due date. In my view, stakeholders like farmers, state government, non-government organisations (NGOs) and other stakeholders should be heard or given an opportunity to present their opinion before appointing an insurance company for any state.
     
    Shrirang Samant: The scheme is out for tender each year and the lowest (L1) insurer is naturally selected, which explains why there is a new insurance company each year. Payment of premium before the inception of the cover is mandated under Indian Insurance Act – remember this is an insurance scheme. As for the other stakeholders, both the central and the state government have prescribed a consultative mechanism which has to be followed each year. 
     
    Mr Iyer: Selection of insurance companies is carried out by the state government by adhering to operational guidelines issued by theunion government, under which sealed tenders are called upon and L1 (the lowest) bidder is selected as the implementation agency.
     
    Q. Every year farmers across the nation will pay premiums by the due date. When it comes to claim settlement, there is no fixed timeline. When we contact the insurance company to obtain premium payment receipt details, they ask us to approach the PMFBY helpline. Generally this helpline does not attend to any calls.
     
    Shrirang Samant: Claim settlement follows a laid down process – the starting point is the assessment of the shortfall in the yield on the basis of crop cutting experiments (CCE). The PMFBY scheme operates on the basis of ‘area approach’ i.e. the defined areas for each notified crop.  For widespread calamities like draught and flood the insurance unit is the village or village panchayat or any other equivalent unit.  
     
    Mr Iyer: There are strict guidelines for cut off dates of submission of yield data by states to insurance companies (usually two months after harvesting).
     
    Also, the insurance company needs to pay the claim within the stipulated time, usually 21 days. In case insurers do not pay the claim within the stipulated time, there is also a provision of levying penalty on the insurer.
     
    3. There are no details of crop loss estimation done by officials of the government or insurance companies anywhere.
     
    Shrirang Samant: Loss estimation is done on the basis of predetermined sample ‘yield’ of a number of crop fields, to determine the actual yield against the yield insured. The results of loss data for an ‘area’ have to be loaded on the portal. This is not in the hands of the insurance company but is the responsibility of the concerned state. All the estimations of yield or crop losses should be compulsorily uploaded within the stipulated timeline on the NCIP by the concerned stakeholders and the admissible claims will be calculated on the NCIP. The status of claims and the claim amount will accordingly be shared with the farmers through NCIP. 
     
    Per para 23.4, the loss reports and actual yield data shall be approved or reverted (in case of any discrepancy, concern on the authenticity, correctness of report or data) by the insurance company. Based on the loss reports and actual yield data, eligible claims are calculated through the NCIP and accordingly the payment of claims are initiated by the concerned insurance company and remitted directly into the beneficiary account as per the pre-defined timelines. The application-wise payment details viz. amount, reference number and date are entered or synchronised with the National Crop Insurance Portal -NCIP.
     
    Mr Iyer: Crop loss estimation in localised surveys is filled in the presence of the farmer only and a representative of the insurer along with one of the state government records it in their apps. Similarly, crop yield estimation is also done in front of the farmer and recorded in the app provided by the government of India.
     
    4. There is no mechanism to lodge a complaint or grievances by the stakeholders of the PMFBY scheme, like the banking and insurance ombudsman.
     
    Shrirang Samant: Para 30 of the operational guidelines lays down an elaborate grievance redressal mechanism at district, state and central levels.
     
    Para 30.6 also lays down a grievance redressal mechanism to be put in place by the insurance company. 
     
    Mr Iyer: There is a proper grievance redressal mechanism available on PMFBY portal. Farmers can also send their complaint to the respective block or district agriculture officer.
     
    5. Recently I have raised an issue with the Prime Minister’s Office (PMO) through CPGRAMS, in response the nodal officer instructed Bajaj Allianz General Insurance Co officials to look into the matter. The insurance company gave me the standard reply that they have not received the required data from the concerned department. 
     
    Shrirang Samant: The insurance company will not pay the claim if the requisite data has not been received from the government – apparently form district level authorities in this case. Has the complainant lodged the grievance with the appropriate authority? I have also learnt informally that a number of farmers do not understand the process or are not educated sufficiently about it. What is needed is the effort on the part of the company or the government to educate the insured farmers. I imagine that the insurance companies do not want to commit resources to do so because of the peculiar structure of the scheme (tendering process works against long term commitment). 
     
    Mr Iyer: The insurance company can settle claims only when they receive the premium subsidies as well as the yield data in time. In Karnataka, the system is already highly evolved and the state has its own app and portal. In fact, the state has been highly proactive in the settlement of claims at the right time.
     
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    COMMENTS

    madhukarsheth

    5 days ago

    Farmers will never be satisfied, however much you may give them.
    They get (almost) free water, electricity, subsidised fertilizrs.
    They sell all their produce with very high MinSupportPrice.
    They get Rs. 3Lakh for committing suicide. No Income Tax !!

    Which industry gets MSP ? Does City Middle Class get all these inputs free ?
    Farmers have lobby but CityMiddleClass = CMC = has no lobby after Shripad Dange & George Fernandes left. CMC needs activists like you, Ms Dalal.

    Newme

    2 weeks ago

    Why all the Central Government schemes named in Hindi. Why not in English all can understand.
    It\'s the six non-Hindi States of Guj, Maha and 4 Southern states which contribute the maximum tax to Central coffers. In fact Hindi speaking BIMARU states are the most backward. Very irritating.

    MONEYLIFE EXCLUSIVE: Was Anugrah Stock & Broking Diverting Investors’ Money into Real Estate?
    Investors who seem in danger of losing nearly Rs1,000 crore with Anugrah Stock & Broking Pvt Ltd now suspect that the owner, Paresh Kariya, may have been diverting funds into real estate and other businesses. A director’s database search by the names of Mr Kariya and his wife throw up other directorships that included  Anugrah Realty Developers Private Limited (incorporated in 2007) and 10 other corporate entities. 
     
     
    According to the details readily available on the ministry of corporate affairs (MCA) website, Anugrah Realty Developers is currently an active entity and Paresh Kariya’s brother, Arvind Kariya is also a promoter of the company. 
     
    Digging deeper, it seems that the Kariya brothers are also part of a construction company called Dream Heritage Private Limited since 2011, along with its two founders, Kanayalal and Rajesh Mewada. The Mewadas had originally founded a now defunct construction company, Dream Infra and Projects Ltd with a registered address in Borivali, in 2011 and are currently joint directors with the Kariya brothers in Dream Heritage. The Kariya brothers most definitely seem to have ties in the real estate business, but whether investors' money from Anugrah was ever diverted to these companies remains to be seen. 
     
     
    Paresh Kariya’s wife Sadhana Kariya, has also been made director in the Anugrah group of companies (latest appointment in 2018) and is registered as the director in six corporate entities. Both Paresh and Sadhana are also promoters of a holding company called WW Technology Holdings Ltd (previously known as Suprabhat Holdings Ltd, 1983-2002). A quick search on Google reveals that this holdings company does not even have a functional website  which is filled with generic placeholder text.
     
     
    Looking into other companies that the Kariya brothers are both involved in, Wagad Fincap Ltd was founded and registered in 1993 by Paresh Kariya, and Sadhana Kariya was made a director in 2007. According to details present on the MCA website, this company is still active but other details as to its operations or functions are scarce. There is also no website for this company. 
     
    Together, the Kariya brothers are also directors on Polytex India Ltd, which according to its comparatively better maintained website (http://polytexindia.com/) is a registered non-banking finance company (NBFC) since 1987 and also on Rapid Credits and Mercantiles Private Ltd. Closer inspection also reveals that many of the aforementioned companies have been registered at the same Vile Parle address as Anugrah Stock & Broking. 
     
    Although there is no direct evidence connecting misappropriation or redirection of investors' funds to the sister concerns of Anugrah, these clues and details certainly do not provide any confidence in the company or its promoters' actions. 
     
    This is clearly a case for the police and economic offences wing (Mumbai EOW Registers Cheating Case against Anugrah Stock & Broking) to look into, since a case has already been registered. Investors of Anugrah, who may have blindly trusted the company, which had lured them with the offer of high monthly returns, have some hope of recovery if the police do find diversion of funds. Moneylife was the first to write about the fraud at Anugrah. All our reports can be accessed here.
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    COMMENTS

    aksharma.pnb

    2 weeks ago

    Liberalisation, privatization and globalisation are nothing but loot of public money via PSBs. Holding companies and subsidiaries should be totally banned and nobody should be director in more than one company. Every company must have owned separate office and MCA should monitor monthly and be made responsible. PSBs should monitor credit facilities daily and charged for any violation.

    Sudhir Mankodi

    2 weeks ago

    Real good investigative piece of journalism. How come when a journalist could find out such link and those sitting in the cosy offices of MCA and ROC, Mumbai could not see those connections and questioned the promotors? Gullible investors have to suffer now. The officials in charge should be made accountable and arrested, interrogated and punished after due legal process.

    s5rwav

    2 weeks ago

    EOW Wing of #MumbaiPolice should Make the #ROCMumbai as Co-Conspirator in the Financial Frauds of Thousands of Crores that seems to have Taken Place with Successive ROCs, Mumbai and RDs, Mumbai of Ministry of Corporate Affairs at Mumbai. I am Babubhai Vaghela from Ahmedabad on Whatsapp Number 9409475783. Thanks.

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